Who carries the burden of climate change? Heterogeneous impact of droughts in sub‐Saharan Africa

Droughts can dramatically affect economic activities, especially in developing countries where more than half the labor force is in the agricultural sector. This paper highlights the causal impact of drought on income inequality using a new methodology known as the quantile treatment effect on the treated under the copula stability assumption. This method generalizes the difference‐in‐differences framework to the entire distribution. The methodology is applied to a geo‐referenced and nationally representative household survey of two sub‐Saharan African countries: Ethiopia and Malawi. The results show that droughts worsen income inequality in both countries. Lower income quantiles are subject to a higher decrease in per capita income, up to 40% for the lowest income quantile. In contrast, higher income quantiles are largely unaffected or appear to benefit from the drought. These results are robust to several specifications and offer quantitative insights into how extreme weather conditions affect inequality dynamics in developing countries. Inequality formation is driven by differences in the ability to cope with droughts. The results show that wealthier households have a higher capacity to find alternative sources of income to prevent a welfare drop. In contrast, the most vulnerable households, particularly those that are low in assets, remote, or headed by women or older individuals, are most seriously harmed. Finally, consumption‐smoothing behaviors and asset depletion strategies in middle income households are also observed.